UpdateDow may not find partner to match $7.5bn - analyst

06 January 2009 19:00[Source: ICIS news]

(Adds Dow comments in paragraphs 12-15)

By Joe Chang

NEW YORK (ICIS news)--Dow Chemical is unlikely to find a joint venture partner that would match the $7.5bn (€5.6bn) price that Kuwait’s Petrochemical Industries Co (PIC) offered for its commodity chemical assets, according to an analyst with BB&T Capital Markets on Tuesday.

“Although we think Dow may be able to find another joint venture partner, we do not believe that it will be able to find a bidder to match the downwardly revised $7.5bn price tag, especially in today’s economic environment,” said analyst Frank Mitsch in a research note.

Dow announced on Tuesday that it will establish a formal process to secure a joint venture partner, as it has already been approached by parties interested in partnering with Dow’s basic plastics business.

Dow was scheduled to receive $7.5bn in cash from PIC, plus a $1.5bn cash distribution from K-Dow upon completion of the deal.

Dow announced it will pursue legal action against PIC for breach of contract. The maximum break-up fee under the merger agreement is $2.5bn and the case would be decided by the International Chamber of Commerce.

Dow said it believed that another joint venture partner would, “combined with the acceleration of planned divestitures and several other divestments that are consistent with the company’s strategy, will yield proceeds greater than the funds Dow expected to receive in connection with the K-Dow joint venture”.

Although Dow’s press release did not mention its planned $18.8bn acquisition of Rohm and Haas, Mitsch said it contained some “cryptic” language regarding the potential of the deal taking place.

Dow confirmed its commitment to its transformational corporate strategy, but also said it was committed to retaining a strong investment grade credit rating and would continue to pay out its dividend.

“Point one suggests all’s well with the Rohm and Haas deal and point two suggests it is not,” said Mitsch.

“We’re hopeful that an intense game of ‘chicken’ is going on behind the scenes with Dow either looking to reduce the acquisition price and cash component, or working to get out of the deal,” he said.

Rohm and Haas is “a strategic fit for Dow,” said the latter company’s vice president of public affairs.

“Rohm and Haas is a strategic fit for Dow and is consistent with our strategy,” said Patti Temple Rocks, vice president of Dow Public Affairs, in a statement to ICIS.

“The transaction is still in the regulatory approval process,” she added.

Dow is expected to obtain regulatory approval by the European Commission this week, and US approval would likely follow shortly, said one source in the financial community.

Shares of Dow jumped $0.77, or 5.1%, to $15.82 in late-Tuesday morning trading, while Rohm and Haas fell $2.42, or 3.8%, to $61.40.